Timmy's Timbers Has Just Arranged a $300,000 Line of Credit

question 104

Multiple Choice

Timmy's Timbers has just arranged a $300,000 line of credit with its banker for the next year. What does this mean for Timmy's Timbers?

• A) Timmy's Timbers now has guaranteed access to up to $300,000, but it must pay a commitment fee on any unused portion of these available funds.
• B) As long as its credit rating doesn't deteriorate, Timmy's Timbers can take out loans of up to $300,000 from the bank over the next year without having to negotiate new loan agreements each time it needs to borrow funds.
• C) The bank now holds commercial paper issued by Timmy's Timbers that will be worth $300,000 plus interest when it matures. In exchange, the bank provides Timmy's Timbers with $300,000 of cash that it can use immediately or at any time over the next year.
• D) Timmy's Timbers now has $300,000 more in cash in its bank account but must begin paying financing charges on these funds immediately.

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Definitions:

Statutory Assignment

The transfer of a legal right from one person to another pursuant to specific statutes.

Notice in Writing

A formal method of communication that is documented in a written format and often required by law or contracts to announce changes or intentions.

Privity of Contract

A doctrine in contract law stipulating that only parties to a contract can sue or be sued on it.

Notice of Assignment

A formal notification to the concerned parties that the rights or interests of an agreement have been transferred from one party to another.